New Zealand Drone Insurers

What is the drone industry like in New Zealand at the moment?

Jennings: There are over 100 “certificated” commercial UAV operators in NZ. The New Zealand Civil Aviation Authority estimates that there are an additional 400-500 commercial operators in NZ operating under the default regulatory structure.

There is considerable uptake in the agricultural industry, with a range of innovative solutions currently being trialled. Several trials of UAV retail delivery (such as pizza delivery) are underway.

A number of training organisations have been created following 2015 regulatory changes. Monthly courses on UAV law and operation are now a regular feature of at least one university in New Zealand (Massey).

The UAV industry is supported by the very effective Callaghan Innovation, a New Zealand government agency directed at accelerating the commercialisation of innovation by firms in New Zealand through technology and research and development.

Kirk: Further to Sam’s comments, I would also add that New Zealand has a number of innovative and very well regarded drone manufacturing companies such as X-Craft and Aeronavices which are leading the way with regard to unmanned aerial technology and robotics.

And what is the legal backdrop? How does it compare to other countries?

Jennings: New Zealand has two civil aviation rule parts that are directed at UAV operations. 

Unlike a number of other jurisdictions the rules make no distinction as to whether the operation of the UAV is conducted on a recreational or commercial basis. New Zealand rules focus on the risk of the operation; it does so by creating a default set of rules under which any person can operate. If an operator wishes to operate beyond those default rules they must seek permission from the CAA.

RPAS operations are either conducted under Rule Part 101 or Part 102.

Part 101 operators are not required to seek authorisation from the Civil Aviation Authority (CAA). As a result, there are no direct controls over the skills and qualifications of the operator, or the airworthiness of the aircraft itself. Part 101 applies to both recreational and commercial users. This means that a wide range of commercial activities can be conducted without any interaction with the CAA. This approach allows lower-risk commercial operations to take place without burdensome certification requirements, as long as the operators remain compliant with the restrictions set out in Part 101.

A key part of Part 101 is that UAV are restricted to operation below 400 feet. Traditional manned aircraft has a minimum operating height of 500 feet (subject to exceptions, such as landing and take off and certain type of operations etc.). There is essentially a buffer created between UAV operations and traditional manned aircraft. However, even under 400 feet priority is given to manned aircraft, with an overarching obligation on UAV operators to stay clear of manned aircraft.

Part 102 is designed for higher-risk operators. It is extremely flexible, in that very few activities are specifically prohibited (other than carrying passengers, for example). Instead, certificates are granted on a case-by-case basis, where the Director of Civil Aviation is satisfied that the operator has identified the risks associated with the intended operation(s) and has a plan in place to mitigate those risks. If an operator cannot comply with the default Part 101 settings, this is typically a good signal that the operation may be higher risk and require certification.

What prompted the move into UAV insurance?

Kirk: At Delta Insurance we like to focus on niche and specialty insurance offerings. Whilst we do underwrite some more mainstream commercial liability products, such as public liability, we are truly passionate about emerging and developing risks. For example, we are one of the largest insurers of technology companies in New Zealand, the NZ tech industry being a burgeoning and well-regarded innovator by global standards. The “tech” sector by our definition includes software developers, hardware manufacturers, software-as-a-service providers, website developers and the like. 

Further we are also regarded as one of the leading insurer of cyber liability risks where we insure such things as cyber-attacks and data breaches. The UAV industry in many ways is comparable to the technology sector as there is a significant R&D focus, technologies are developing rapidly and by definition the risks are emerging and sometimes not well defined. As such it seemed a natural fit for our business.

When we started to research the insurance market for drones it became quickly clear that the insurance solutions in the market were very limited and coverage was often restrictive. We had already had a number of enquiries from our existing clients where they were using UAVs for various commercial activities and it was clear that there is an insurance demand which wasn’t being adequately addressed by the industry.

As we started to explore the development of a product offering we decided to partner with a specialist insurance syndicate at Lloyd’s of London, Ark Specialty. Ark have global experience with insuring UAVs and we were able to tap into their knowledge and bring some of these global learnings into the product development process, as well as include certain coverage benefits which we knew would appeal to local UAV operators.

What is it that is unique about the service you are offering?

Kirk: Our UAV product offering is the only insurance product offered locally in New Zealand that provides a comprehensive cover for damage to the UAV itself plus liability risk including statutory liability. The hull cover will protect for damage to the entire UAV operating system, including payload. The liability component will cover liability risks such as damage to third party property, personal injury suffered by third parties and breach of certain defined statutes such as the privacy act, health and safety act and civil aviation legislation.

Many of the other insurance solutions in the market are not tailored specifically to the needs of UAV operators and are rather cobbled together to provide what is ultimately an inadequate solution. We feel that by offering a comprehensive “one stop shop” solution it will reduce potential gaps in cover for the UAV operator.

What problems are there in the UAV industry at the moment that need addressing where it relates to insurance, liability, and risk?

Jennings: There are several key areas that present problems for the insurance industry:

• regulatory uncertainty;
• legal uncertainty;
• lack of aviation knowledge and experience of participants. 

On the civil aviation safety regulatory front New Zealand has declared itself a close follower rather than a leader. The current regulatory framework has also openly been described as a temporary measure, with more comprehensive work contemplated. Development in other jurisdictions is likely to influence the regulatory direction. The nature of regulatory change is uncertain; we could see further restriction of UAV activities or an even more flexible environment. This will obviously require the insurance industry to respond quickly and adjust to any new regulatory setting.

The current regulatory approach also confers more than normal levels of discretion to the Director of Civil Aviation to set limitations or even allow UAV activities that might not be permitted in other jurisdictions. This means that operators wanting to trial or test higher-risk operations or new technology might be attracted to the favourable regulatory conditions (and perhaps even very friendly accident compensation legislation) in New Zealand.

There is a range of legal certainty in New Zealand around UAV operations. Like many jurisdictions around the world, it is unclear for example what rights, if any, property owners have in respect of airspace. This uncertainty is likely to adversely impact on regulatory development. The broad ranging legal uncertainty also has flow on effects around privacy rights and the legal ability of local authorities to set restrictions around airspace and land use in respect of UAV operations. There is also considerable uncertainty about government use of UAV technology and how this is compatible with existing search and surveillance legislations.

New Zealand has also recently made significant changes to its health and safety legislation. The impact of these changes, and what reasonable measures operators will be expected to take in practice is yet to be tested in the UAV space.

A key challenge around UAV uptake in New Zealand is that many operators do not have aviation knowledge or experience.

They are not pilots who understand the traditional aviation framework. The lack of participant understanding of broader aviation risk and regulation is problematic for insurers because even if they are not taking on such people as customers as a result of their own vetting/screening, their customers are ultimately operating in the same airspace as this “high risk” group of new aviation participants.

New Zealand’s airspace is typically very quiet and free from large traffic volumes. The rapid uptake of UAV technology is likely to change this picture and create more competition for airspace – both between individual UAV operators as well as UAV operators and manned aircraft operators. This is likely to become even more challenging if New Zealand moves toward increasingly integrating UAV operations into traditional aviation operations (for example allowing the landing of a unmanned UAV at a major airport alongside schedule manned services).

Do you have plans for expanding your UAV coverage?

Kirk: At this stage the product is largely focussed on commercial UAV operators however if there is demand we will be looking to extend this out to include the likes of UAV manufacturers and UAV service operations. If we move into these areas, this does open up additional exposures such as product liability and efficacy issues which will need to be considered and underwritten carefully.

One other area that needs further exploration is the question of cyber security associated with the use of UAVs. Like any other form of hardware, if drones are connected to the internet then this means that they can be vulnerable to theft, attack, interception or jamming by third parties who have malicious intent. For example, if you think about a drone being used for filming a sporting event which is providing a live feed over an internet connection to a sports broadcaster, without the appropriate security controls in place it is possible that this drone could be intercepted and flown into a stadium resulting in loss of life. Another example could be where a UAV is being used for collecting sensitive data or imagery – perhaps by a government agency – and again this drone could be intercepted and that sensitive information used for criminal means.

At this stage our offering does not provide cover for these sorts of cyber threats but we will be monitoring security developments closely to consider whether we can craft an appropriate insurance coverage for this risk.

On a separate point, Delta Insurance is actively looking at expanding our operations overseas and as we move into these overseas territories our UAV operators offering would form a key part of our product set abroad.

Are other insurers likely to take up their own packages now?

Kirk: There are a number of insurers that are already providing UAV insurance solutions overseas in some shape or form. However, many of the mainstream insurers lack sufficient innovation and are slow to understand and create insurance solutions for emerging risks and technologies. Accordingly, we believe that packages such as what we offer for UAV operators will largely remain the domain of speciality and niche insurance providers such as Lloyd’s of London. That said, as the UAV industry expands and drone use becomes more prevalent (and drone technology better understood) we expect that supply of insurance for drone activities will increase.

What benefits will early action such as this have on the future of the drone industry?

Jennings: The coverage offered is likely to mean that beyond the regulatory framework, operators will be subject to additional obligations as a precondition to obtaining and/or maintaining  coverage. This is likely to improve overall compliance and operator performance. 

It may also enable New Zealand to market itself as a lower risk environment for overseas operators to trial UAV technology and undertake research and development work. 

The roll out of the new coverage is also likely to help the industry to better measure and understand its risk profile in New Zealand. The absence of a claims history is likely to also be a good indication to regulators about compliance, safe operation and reliability of UAV technology of a particular operator.

New Zealand has accident compensation legislation which bars most forms of personal injury litigation. With some special exceptions and qualifications, the scheme essentially provides a system of state compensation universal comprehensive, no-fault personal injury cover for all New Zealand residents and visitors to New Zealand. The injured party may not initiate litigation but rather must file a claim with the Accident Compensation Corporation. The scheme provides cover for accidents suffered on a "no fault, no blame" basis. If there is cover for personal injury or death under the legislation, no civil claim for compensation may be brought in the courts.

The statutory bar to proceedings means that there is no civil liability in New Zealand for most personal injuries. The bar to civil claims protects not just the person who caused the injury but also any indemnifier of that person. The bar prevents claims not only by the person injured but also by the Corporation after it has paid compensation to the injured person. It cannot bring subrogation claims against the person who caused the injury.

A perhaps unintended consequence of the ACC scheme is that New Zealanders tend to misunderstand or underestimate their wider legal risk. At present it is likely that many UAV operators lack a full understanding of their legal and financial risks, beyond damaging their own machine or someone else property. Many operators probably have little appreciation of their potential exposure in the event of a major accident, such as mid-air collision with an airliner that resulted in hull loss or a downed UAV causing a large scale ground fire.

The new insurance product for UAV operators provides an opportunity for insurance specialists to understand the particular operating conditions and activities of an operator, and provide advice on, and identify, the full range of risks that might apply to their operation.

Kirk: The drone industry by its nature is driven by scientific advancement, technological development and commercial entrepreneurialism. In some jurisdictions, such as New Zealand, it is also supported by regulatory environments that promote and enable the appropriate testing and practical commercial use of UAVs. However, if the risks associated with the manufacture and use of these technologies outweighs the benefits that are generated by UAV use then this can hamper future development of the industry.

Insurance is a mechanism by which industry participants can transfer risk to underwriters and this can provide favourable outcomes to manufacturers, operators and regulators alike. As such we believe that by providing suitable insurance solutions to the industry it will enable the industry to manage their risk profile which will in turn permit the industry to flourish and prosper.